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Wednesday, August 27, 2014

Real Estate Secrets: Understanding the 'Option Period' and What This Term Means for You as a Buyer

When the sale of real estate takes place, a certain amount of time might be allotted after a contract is created but before the transaction is finalized. During this time the buyer may decide not to follow through with the deal set forth in the contract. This 'option period' allows buyers to have a property inspected and its value ascertained without the risk of losing the property to another buyer.

What Happens When The Option Period Takes Place

Typically, a buyer must pay an option fee in order to be able to enjoy the luxury of an option period. During the option period, property inspections are typically carried out on the property in question so that the buyer can be sure that the proposed offer is appropriate.

The nonrefundable option fee that the buyer pays the seller (so that the seller agrees not to follow through on a transaction with another prospective buyer) compensates the seller for the time during which the property is off of the market.

Differences Between Various States

It is not always possible for a buyer to have an option period during which he or she can finalize plans to make a purchase on a property. Regulations and procedures between different states vary significantly.

It is worth noting that the state of Texas has a real estate market that is particularly well known for granting option periods. In Texas, the option period usually lasts between seven and 14 days and serves as a period of time during which inspections are carried out; however, other states have different ways of dealing with option periods and scheduling inspections.

Associated Expenses

The particular laws applicable where a sale takes place will often dictate how much a buyer needs to pay to the seller in option fee charges. In the state of Texas, for example, the option fee is usually no greater than 1 percent of the sale price of the home. The option fee is normally applied to the transaction at escrow closing in the event that the buyer decides to proceed with the sale.

Buyers who decide not to purchase a property after the option period has already begun will usually be responsible for paying the option fee to compensate the buyer for lost time. However, the buyer will be under no further contractual obligations.

If you have questions on the processes and regulations involved in a real estate transaction, contact an experienced real estate agent to learn more.

MEDIAN PRICE FOR ATLANTA HOMES

INVENTORY FOR ATLANTA HOMES

AVERAGE DAYS ON MARKET FOR ATLANTA HOMES

MARKET STRENGTH FOR ATLANTA REAL ESTATE

The chart above, Market Action Index (MAI), illustrates the balance between supply and demand using a statistical function of the current rate of home sales versus current home inventory on a scale of 1-60. An MAI value greater than 30 typically indicates a “Seller’s Market” (a.k.a. “Hot Market”) because demand is high enough to quickly absorb available supply. A hot market will typically cause prices to rise. MAI values below 30 indicate a “Buyer’s Market” (a.k.a. “Cold Market”) where the inventory of already-listed homes is sufficient to last several months at the current rate of sales. A cold market below 27 will typically cause prices to fall.